At our annual conference on 30 November at London’s County Hall, our chief executive Hanneke Smits (HS) was interviewed by BBC journalist Emily Maitlis (EM) and asked to take stock of her first full year at the helm. In emphasising the partnership between Newton and its clients, Hanneke answered a wide-ranging set of questions – from the influence of her family on her life and career, to her first impressions of Newton, and how she sees the firm’s role as a leading active asset manager. She also discussed the parallels between private equity and the work of Newton, and why change – and managing it in the right way – is crucial to Newton’s future success at a time of great change within the industry.
EM: You’ve been at Newton for over a year now. How would you summarise what you’ve been doing?
HS: First, I have been doing a lot of listening: to our clients, our staff, our BNY Mellon distribution partners, and industry bodies, to understand what we were doing well and what we were not doing so well. I wanted to understand our clients’ evolving requirements.
I have been working on building a strategic plan for the next five years, which looks at ways we can reduce complexity within our business. It will also emphasise our commitment to grow our international footprint outside the UK while maintaining our strong presence within it. Meanwhile, we will continue to focus on a number of key areas, such as outcome (absolute-return) and income-orientated strategies, and we will look to grow our sustainable fund range. From listening to our clients, I realised very quickly how important it was to address our governance, as well as to ensure that we better articulate our investment process, and specifically how themes are used within our strategies.
EM: In many ways, Newton is remarkably stable. Next year is the firm’s 40th anniversary, and you are only the third CEO. Can you really hope to introduce change?
HS: I view change as the one constant in all our lives. In the case of changes at Newton, from my perspective it is very much about ‘evolution’ rather than ‘revolution’. I am not changing the investment process or idea-generation engine, but I have made some changes after listening to staff and clients, which I believe will be in the best interests of our clients. I have simplified the management structure and have brought in a chief investment officer, Curt Custard, who, unusually for Newton, is an external hire. He will help to articulate the investment process and quantify the impact of themes on that process. Overall, however, his role is to enhance the investment process rather than re-engineer it.
Another key change has seen Julian Lyne given oversight of our client partnerships, as it is crucial that our clients receive what they signed up for. By this, I mean ensuring that we are equipped to deliver the appropriate investment outcomes for our clients and also, with MiFID II round the corner, that we are ready to meet our regulatory responsibilities. As part of that, we announced in July that we would absorb our external research costs because it is the right thing to do for our clients. Research is our engine, and we have a very strong internal research team, but it is important to augment that with external research which Newton will pay for.
EM: what are some of the obstacles you’ve faced in implementing changes?
HS: Some of our obstacles were internal ones because change can often be difficult. It is about bringing your staff with you on the journey. Similarly to listening to clients, I also listened to staff. I asked what was working, what was not working, and what should be our priorities for 2017. I summarised the feedback at the end of 2016, which then led to the development of 2017 objectives for the firm.
EM: In thinking about governance, I can’t help but ask you about the news reported in the press that Newton was one of four asset management firms named in a statement of objections from the Financial Conduct Authority (FCA)?
HS: That’s right, and it’s really good that I have the opportunity to address the news. While we can’t comment on specific aspects of the FCA’s ongoing investigation, I would like to emphasise that we have been cooperating fully with the FCA, and will continue to do so until this matter reaches its conclusion. The investigation is focused on a very small number of Newton’s strategies which can invest in small and mid-cap UK equities. Specifically, it relates to activity surrounding two initial public offerings and a placement in 2014 and 2015.
There has to date been no loss to any client as a result of the activity, and we do not anticipate any loss in future. We remain committed to ensuring that all of our accounts are managed to the highest legal and ethical standards, and our longstanding reputation as a respected financial institution is a core reason why clients continue to put their trust in us. On that point, I want to emphasise that, during the recruitment process and prior to my appointment as CEO, I carried out my due diligence on Newton including this issue, and was very confident then that this issue in no way reflected the broader culture or practises of the firm. My first 15 months in the role have confirmed that this is the case.
EM: You’ve spent your career in private equity, which is the most active form of investment there is. What lessons can it bring to active investment management to prove its relevance?
HS: There are two ways to think about private equity: first, from the investment perspective, and secondly from the ownership perspective. In these areas, private equity shares the same values as Newton has. The investment perspective means taking a long-term view and understanding the importance of investing in research, which we will continue to do. From the ownership perspective, private-equity companies are active stewards of capital (as Newton is). Newton also believes in active engagement and good governance. In the same way that private-equity firms invest in companies, we are actively engaged owners. Over the last year, Newton has voted at 510 Annual General Meetings or Extraordinary General Meetings, voting with the company management on 55% of occasions and against on 39% of occasions. This shows that we take active engagement and ownership very seriously.
Ownership also means reviewing our governance at all times, and, as with private equity, aligning our teams’ incentives with our clients by measuring performance. In terms of staff turnover, it can often be a positive thing – especially if you accept that it will eventually happen – and plan for it. Our most recent changes – with Iain Stewart reducing his time on the Real Return strategy and Christopher Metcalfe retiring – were planned.
EM: What matters to you professionally and personally? What do you care about?
HS: Having grown up in the Netherlands, there are a number of things that were ingrained in me by my parents and grandparents. My father’s parents were farmers who went bankrupt in the 1930s. They were bailed out by their siblings, who helped them to repay their debts. My paternal grandfather went to agricultural college, which eventually led him to get a job at the ministry of agriculture, and to retire on a civil service pension. He was determined that his children should be well educated and understand the importance of savings and pensions. My mother’s father died in the Far East at the end of the Second World War, leaving my grandmother with a wartime pension, which she invested in her daughter’s education. Both of my parents have always instilled in me the importance of education and savings, and this is also a crucial element of what we do at Newton.
My parents also stressed the importance of treating girls and boys equally in terms of giving them access to education. Thinking about diversity more broadly, I believe that it is very important for an investment firm to employ a varied workforce because diversity (by gender, social and economic background, nationality, etc.) leads to different perspectives, better discussions and, ultimately, better decisions.
To nurture greater diversity, we have a number of schemes and training programmes. Our vocational placement programme has delivered four graduates, with a further eight currently participating. We also have unconscious bias training, a returning military programme, and more than 6% of Newton staff have taken advantage of flexible working. I believe these initiatives are helping us to achieve better investment outcomes. Of course, being part of a leading asset-management group means giving something back too, both to the industry and to society. In our joint initiatives with BNY Mellon, such as the Cancer Research UK Boat Races, and as part of CASCAID, we have generated around £3 million for Cancer Research UK. We are also a founding member of KickStart Money, a programme which aims to make financial education a core part of the national primary curriculum.
With respect to me, I am a trustee of the charity Impetus-PEF, which aims to keep 11-24 year-olds from disadvantaged backgrounds in education and help them enter the work environment, and I sit on the advisory council of the Investment Association, as well as on the steering committee of Level 20, a group which I co-founded and was the first chair of, which aims to encourage more women into senior roles in private equity.
EM: What do you think will be the biggest themes and trends driving investment choices over the next 12 months? If we are sat here in a year’s time, what will we be discussing?
HS: We will probably still be discussing Brexit, but I hope not! I would rather be talking about how we are leading in the responsible investing space, and how we have enhanced our environmental, social and governance (ESG) capabilities through the successful launches of sustainable fixed income, global equity and Real Return funds. And I hope we will also be able to look back on some excellent investment performance.